Category: Health Benefits

Arizona’s New Paid Sick Time Law Goes Into Effect July 1, 2017

Arizona voters recently approved Proposition 206, which will increase the minimum wage to $10 per hour, effective as of January 1, 2017, and provides all Arizona employees (other than employees of the federal or state government) paid sick time (PST) as of July 1, 2017.

This post summarizes the key issues that employers will need to address before July 1, 2017. We will be providing more information and will assist clients in drafting a compliant policy in the coming months, as we expect clarification on the notice requirements in rules that will be issued by the Industrial Commission of Arizona (ICA).

Employers will likely want to create a new PST policy, which they provide to employees before 7/1/2017, and which explains the employees’ rights to PST under the new Arizona statute.

Coordination with Other Policies

In most cases, employers will want to make their PST policy separate from any existing Paid Time Off (PTO) policy, even though the two policies will refer to each other. In addition, existing PTO policies may need to be refined to ensure they work as smoothly as possible with the new PST requirements.

Your PST policy will need to coordinate with your FMLA leave policies, as the two types of leave may overlap in some instances, but they are not synonymous. Employers should also consider coordinating their PST policy with any self funded short term disability policy, to ensure that they do not have to pay out twice for the same leave (once under the STD policy and once under the PST policy)

PTO Accrual

  • If you are an employer of fewer than 15 employees, employees must be allowed to accrue and use up to 24 hours of PST per year and if you are an employer of 15 employees or more, employees must be allowed to accrue and use up to 40 hours of PST per year (the time is accrued 1 hour for every 30 hours worked)
  • FLSA Exempt employees are presumed to work 40 hours per week; unless they actually work less than 40 hours per week in which case they can accrue PST based on actual hours worked.
  • Time taken for PST can also reduce available PTO (if your PTO policy so provides).

Employees can take PST for Four Broad Reasons:

  • Their own mental or physical illness, injury or health condition, need for diagnosis, treatment or care, or for preventive care
  • Care of a family member with the above
  • Absences necessary due to certain domestic violence, sexual violence, abuse or stalking
  • Certain business closures due to public health emergencies.

Optional Policy Provisions

In adopting a PST policy, employers will need to consider the following (we anticipate providing a checklist in the Spring of next year to help clients draft their policy to incorporate these choices):

  • Define a PST year: Your policy will need to define when the PST year begins. We generally recommend January 1, unless your company uses a different month for the beginning of the work year or your welfare benefits plan year.
  • Define the increments in which the employee can use the accrued PST: may be used in the smaller of either an hourly increment or the smallest increment that your payroll system uses to account for absences or use of other time.
  • Termination of Employment: Will you pay employees out for accrued PST upon separation of employment? Most employers will not pay it out.
  • Carryover of PST or payout unused accrued PST at the end of the year? Employers have the option to pay out unused PST at the end of each year, or to carry it over.
    • We recommend that most employers not payout the unused PST and instead allow the time to carryover each year. The employee will continue to accrue additional PST (up to 24 or 40 additional hours). However, the impact of this is limited because:
      • employees cannot use more than 24/40 hours of PST per year, regardless of how much PST they carry over and end up accruing in the new year, and
      • employers do not have to pay out PST upon termination of employment. The carry over therefore simply allows the employee to have the availability to use PST hours that were accrued and unused during the prior year – i.e. to use PST immediately in the subsequent year, as needed. The financial impact can be limited for most employers if their PTO policy is properly drafted to ensure this time is also deducted from an employee’s PTO bank.
  • Delay Availability of PST for New Hires (after 7/1/2017)? Newly hired employees will accrue PST once they commence employment, however employers may require that they wait until 90 calendar days after they commence employment before they can use any accrued PST.
  • Who in your organization will keep record of the PST? : Employers must keep records for 4 years.
  • Will you allow employees to borrow PST?: Most employers will not allow borrowing of PST. However, many will revise the PTO policies to allow borrowing of PTO, if it is used for PST reasons (thereby increasing the likelihood that you will in fact reduce the amount of PTO available by each hour of PST taken).
  • What Procedures will you Adopt for Requiring Notice before an Employee Takes PST (both foreseeable and non-foreseeable)? (and how will you coordinate that with your current policy for requesting PTO)?
    • If you require notice of the need to use PST, even where the need is not foreseeable, your policy must include the procedures for the employee to provided notice.
  • What circumstances will you require proof of the need for PST (other than a request)?
    • You may request “reasonable documentation” that earned PST is used for a proper purpose only where an employee seeks to use three or more consecutive work days of PST.
    • “Reasonable documentation” is defined as “documentation signed by a health care professional indicating that the earned paid sick time is necessary.”
    • Where three or more consecutive PST days are used in cases of domestic violence, sexual violence, abuse, or stalking, the statute provides alternative forms of reasonable documentation that may be requested, such as a police report, a protective order, or a signed statement from the employee or other individual (a list of which appears in the statute) affirming that the employee was a victim of such acts.
    • If you currently require a doctor’s note for any single-day absence you will need to change that practice.

In addition to adopting a policy, and posting a required notice (a model of which the ICA will provide), employee pay statements must include or have enclosed a report of PST to include the following:

  • the amount of PST available;
  • the amount of PST taken to date; and
  • the dollar amount of PST paid year to date

We recommend clients wait until March/April of 2017 before drafting their PST policy and updating their PTO policies, because expected ICA rules will likely provide some guidance on the new law that may impact your policy choices. We anticipate providing clients a checklist in the Spring to select the features they would like in a PST, and to draft policies based on those choices. We expect we will be able to provide that service for a low flat fee. Look for details in the Spring.

OSHA Issues Final Rules for Handling ACA Retaliation Claims

The Department of Labor’s Occupational Safety and Health Administration has published a final rule establishing procedures, time frames and burdens of proof for handling whistleblower complaints under the Affordable Care Act (ACA).

The ACA amended Section 18C of the Fair Labor Standards Act to protect employees from retaliation for receiving federal financial assistance when they purchase health insurance through an Exchange. It also protects employees from retaliation for raising concerns regarding conduct that they believe violates the consumer protections and health insurance reforms found in Title I of the ACA.

This rule establishes procedures and time frames for hearings before Department of Labor administrative law judges in ACA retaliation cases; review of those decisions by the Department of Labor Administrative Review Board; and judicial review of final decisions. Significant provisions in the final rule, and implications for employers include:

  • As with other retaliation claims, the complainant need not prove that the initial complaint, which they allege triggered the retaliation, pertained to an actual violation of law. They only need to show that they had a good faith belief that they were complaining about a violation of law.
  • To establish a prima facie case of retaliation for receiving a subsidy or premium assistance through an Exchange, an employee merely needs to show that an adverse action took place shortly after the protected activity.
  • This will be a very easy burden to meet where the employer has knowledge that the employee was receiving a subsidy or premium assistance. For example:
    • an employee might ask the employer about the coverage available through his employment, for the purpose of applying for a subsidy through the Exchange.
    • in addition, under the ACA, when an exchange provides a premium subsidy it is supposed to notify the employer. This will provide the employer specific notice that the employee has requested or is receiving a subsidy.
    • the employer’s knowledge of the above could prove fatal to the employer’s defense of a retaliation claim, unless the employer scrupulously segregates such knowledge from those making employment decisions.
  • Once a claimant establishes a prima facie case, the burden shifts to the employer to establish by clear and convincing evidence that it would have taken the adverse action even if the protected activity had not occurred. This is a very high standard.

More…

The Final Rule

OSHA’s Affordable Care Act fact sheet provides more information regarding who is covered under the ACA’s whistleblower protections, protected activity, types of retaliation, and the process for filing a complaint.

IRS Information Letters Provide Further Guidance on “Employer Payment Plans”

The IRS has released a series of information letters providing further guidance on the application of ACA group health plan market reforms to various types of employer health care arrangements. These information letters provide further definition to when the IRS will consider an arrangement to be an impermissible “employer payment plan” that does not satisfy the ACA market reforms. As previously discussed here and here and here, adopting an impermissible employer payment plan exposes employers to excise taxes under Code § 4980D ($100 per day per affected individual).

I. Opt-Out Arrangements. In Letter 2016-0023 the IRS indicated that if an employer pays additional taxable compensation to employees who forgo coverage under the employer’s group health plan (opt-out payments), due to having other coverage, the employer will not trigger the 4980D excise tax, as long as the amount of additional taxable compensation is unrelated to the cost of the employee’s other coverage.

II. Small Plans Exception. In Letter 2016-0005 the IRS allowed reimbursement of individual policy premiums provided that there is only one “active” employee in the plan. This is because the ACA market reform rules do not apply to a group health plan if the plan has less than 2 participants who are active employees.

III. Relief For S Corporations. Letter 2016-0021 explains that S Corporations may continue to pay for or reimburse premiums for their “2% shareholders-employees” without being subject to Code 4980D excise taxes, until further guidance is issued (this position was previously stated in Notice 2015-17). This relief does not, however, apply to S corporation employees who are not 2% owners.

IV. Beware of Promoters Promising They Can Structure a Plan to Allow Reimbursement of Individual Policy Premiums. In Letter 2016-0019 the Treasury explains that it has been made aware of a number of what it describes as “schemes”, whereby promoters are marketing products that they are claiming will allow employers to reimburse individual health policy premiums without violating the ACA market reforms. Treasury is looking at the information and warns that it disagrees with the promoters’ claims that their product does not impose an annual limit on essential health benefits. Consequently, their product fails to meet the market reforms.

IRS Publishes Affordable Care Act Estimator Tools

The IRS Taxpayer Advocate Service has posted several useful tools for individuals and employers to help determine how the ACA may affect them and to estimate ACA related credits and payments.

The Employer Shared Responsibility Provision Estimator helps employers understand how the Employer Mandate works and how the penalties for not complying with the Employer Mandate may apply. Employers can use the estimator to determine:

  • The number of their full-time employees, including full-time equivalent employees
  • Whether they might be an Applicable Large Employer (ALE)
  • If they are an ALE, an estimate of the maximum amount of the potential liability for the employer shared responsibility payment that could apply to them, based on the number of full-time employees that they report, if they fail to offer coverage to their full-time employees

Caution: this tool is only designed for use in 2016 and forward (it is not designed to estimate 2015 penalties). Moreover, the tool can only provide an estimate of the maximum amount of potential liability for the employer shared responsibility payment.

IRS Clarifies Tax Treatment of Wellness Program Rewards

The IRS Chief Counsel Advice has issued a Memorandum explaining that an employer may not exclude from an employee’s income under section 105 or section 106:

1) cash rewards paid to an employee for participating in a wellness program; and

2) reimbursements of premiums for participating in a wellness program if the premiums for the wellness program were originally made by salary reduction through a section 125 cafeteria plan.

While coverage by an employer-provided wellness program that provides medical care as defined under section 213(d) is generally excluded from an employee’s gross income under section 106(a), and any section 213(d) medical care provided by the program is excluded from the employee’s gross income under section 105(b), any reward, incentive or other benefit provided by the medical program that is not medical care as defined under section 213(d) is included in an employee’s income, unless it is otherwise excludable as an employee fringe benefit under section 132.

For example, a wellness program that provides employees with a de minimis fringe benefit, such as a tee-shirt, would satisfy the requirements to be an excluded fringe benefit. However, the employer payment of gym membership fees does not qualify as medical care as defined under section 213(d) and would not be excludable from the employee’s income, even if provided through a wellness plan or program, because payment or reimbursement of gym fees is a cash benefit that is not excludable as a de minimis fringe benefit.

In addition, cash rewards received from a wellness program do not qualify as the reimbursement of medical care as defined under section 213(d) or as an excludable fringe benefit under section 132, and therefore are not excludable from an employee’s income.

Finally, the exclusions under sections 106(a) and 105(b) do not apply to reimbursement of a portion of the employee’s premium for the wellness program that was excluded from gross income under section 106(a) (including salary reduction amounts pursuant to a cafeteria plan under section 125 that are applied to pay for such coverage). Accordingly, the reimbursement of such amounts are included in the employee’s gross income.

IRS Chief Counsel Advice Memorandum

US District Court for DC Rules Payment of Some ACA Subsidies are Unconstitutional without Separate Appropriation

The U.S. District Court for the District of Columbia has ruled that certain Affordable Care Act subsidies designed to reduce deductibles, co-pays, and other means of “cost sharing” by insurers cannot be paid unless they are separately appropriated by Congress. U.S. House of Representatives v. Burwell, et al., (2016, DC DC), Civil Action No. 14-1967 (RMC).

The case involves two sections of the Affordable Care Act: 1401 and 1402. Section 1401 provides tax credits to make insurance premiums more affordable, while Section 1402 reduces deductibles, co-pays, and other means of “cost sharing” by insurers. Section 1401 is codified at 26 U.S.C. 36B (in the tax code) and was funded by adding it to a preexisting list of permanently-appropriated tax credits and refunds.

Section 1402 was not added to that list. The court ruled that Section 1402, which is codified in Title 42, which includes federal laws concerning “Public Health and Welfare” cannot be funded through the same, permanent appropriation as Section 1401. Instead, Section 1402 reimbursements must be funded annually.

The Court ruled that by paying out the subsidies without the necessary appropriation, the Administration violated Article I, Section 9, clause 7 of the U.S. Constitution, which provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law . . . .”

The Court enjoined payment of the reimbursements, but stayed its ruling pending appeal. Therefore, the short term effect is that that reimbursements will continue while the case is on appeal. A decision from the US Court of Appeals for the DC Circuit on appeal will likely take months.

More … U.S. House of Representatives v. Burwell, et al., (2016, DC DC), Civil Action No. 14-1967 (RMC).

IRS Announces 2017 Inflation Adjusted Amounts for Health Savings Accounts (HSAs)

The IRS has announced 2017 HSA limits as follows:

Annual contribution limitation. For calendar year 2017, the annual imitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,400 (up from $3,350 in 2016), and the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $6,750 (unchanged from 2016).

High deductible health plan. For calendar year 2017, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage (both unchanged from 2016), and the
annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage (also unchanged from 2016).

Rev. Proc. 2016-28

OCR Launches Phase 2 of HIPAA Audit Program

As a part of its continued efforts to assess compliance with the HIPAA Privacy, Security and Breach Notification Rules, the HHS Office for Civil Rights (OCR) has begun its next phase of audits of covered entities and their business associates.

In its 2016 Phase 2 HIPAA Audit Program, OCR will review the policies and procedures adopted and employed by covered entities and their business associates to meet selected standards and implementation specifications of the Privacy, Security, and Breach Notification Rules. These audits will primarily be desk audits, although some on-site audits will be conducted.

The 2016 audit process begins with verification of an entity’s address and contact information. An email is being sent to covered entities and business associates requesting that contact information be provided to OCR in a timely manner. OCR will then transmit a pre-audit questionnaire to gather data about the size, type, and operations of potential auditees; this data will be used with other information to create potential audit subject pools.

The OCR’s detailed audit protcol is available here.

If an entity does not respond to OCR’s request to verify its contact information or pre-audit questionnaire, OCR will use publically available information about the entity to create its audit subject pool. Therefore an entity that does not respond to OCR may still be selected for an audit or subject to a compliance review.

To learn more about OCR’s Phase 2 Audit program, click on one of the links below:

When Will the Next Round of Audits Commence?

Who Will Be Audited?

On What Basis Will Auditees Be Selected?

How Will the Selection Process Work?

How Will the Audit Program Work?

What if an Entity Doesn’t Respond to OCR’s Requests for Information?

What is the General Timeline for an Audit?

What Happens After an Audit?

How Will Consumers Be Affected?

Will Audits Differ Depending on the Size and Type of Participants?

Will Auditors Look at State-Specific Privacy and Security Rules in Addition to HIPAA’s Privacy, Security, and Breach Notification Rules?

Who is Responsible for Paying the On-Site Auditors?

IRS Notice 2015-87 Provides Further Guidance on the Application of ACA Market Reforms to Employer Payment Plans, Employer Mandate and COBRA

On December 16, 2015, the Department of Treasury and IRS issued Notice 2015-87 which provides further guidance on the application of the market reforms that apply to group health plans under the Affordable care Act (ACA) to various types of employer health care arrangements. The notice includes guidance that covers:

(1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan, and similar employer-funded health care arrangements; and

(2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan). The notice supplements the guidance provided in Notice 2013-54; FAQs about the Affordable Care Act Implementation (Part XXII) issued by the Department of Labor on November 6, 2014; Notice 2015-17; and final regulations implementing the market reform provisions of the ACA published on November 18, 2015.

iconsee our previous post on this topic.

Notice 2015-87 also clarifies certain aspects of the employer shared responsibility provisions of § 4980H, and clarifies the application of the COBRA continuation coverage rules to unused amounts in a health flexible spending arrangement (health FSA) carried over and available in later years pursuant to Notice 2013-71, and conditions that may be put on the use of carryover amounts.